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By TMFKitKat
May 13, 2009

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I want to hate this company and there is plenty to hate. But for some reason I cannot

Hologix came to my attention sometime back in 2003 maybe. It was in IBD and I liked it so much I never bought it but I never forgot it either
Digital radiology was not mainstream just yet and I did not realize the potential so passed on it. The company went on to more than 6X appreciation at the price they first caught my attention

The business back ten was mainly radiology for mammograms in digital format. They still do that. They introduced a few other products along the way and made minor acquisitions and the price kept climbing to ridiculous valuations. One of those stocks that can do no wrong - until now.
An interesting article

Should Bulls Stampede Back to Hologic?

* Bill Feingold
* On Tuesday May 5, 2009, 2:15 pm EDT

Hologic (HOLX), the maker of women's medical diagnostic equipment, dropped a bomb in announcing its new product would be delayed. The stock is off about 20% today.

For holders of the company's 2% convertible bonds, though, this might actually turn out to be good news.


Some bulls on Hologic -- including one for whom I have great respect -- think the stock is worth at least somewhere in the mid-to-high 20s, and possibly more. Now, the bond's conversion price is about $38. But with the stock now down around $12, a potential acquirer stands a much better chance of buying the company in, say, the mid-to-high teens than it would have had yesterday.

In the case of a cash deal, the convertible bonds become putable at par (100). They're currently trading around 68.

For the sake of argument, let's say Hologic is taken over at $16. This would be a 33% increase from the current stock price. But the bonds would go up nearly 50% when putable.

Because the conversion price is so much higher than any foreseeable stock move is likely to reach, bondholders would not participate in the lion's share of a big stock jump. If, for instance, the stock is at 35 when the bonds become regularly putable in 2013, the bonds would still only be worth 100.

So the bonds now, arguably, have a greater chance of an accelerated put while being less likely to miss out on the bulk of a big run in the stock.

Another case for convertibles.


Here in a nutshell is what they do. This includes the acquisition of Cytyc in 2007 which is where things fell apart for predictable reasons.

Hologix now has 4 operating segments

* Breast Health
* Diagnostics
* GYN Surgical
* Skeletal Health.

Breast health

HOLX offers a line of breast imaging products, including the Selenia full field digital mammography system, a series of screen-film mammography systems, breast biopsy image guidance systems, computer-aided detection (CAD) systems for both screen-film and digital mammography, and DirectRay digital detectors.

The company's photoconductor coating business, which it acquired in connection with its acquisition of its selenium coating capabilities for its digital detectors, is also a component of its breast health business.

The most interesting product is the Selenia system.

The Selenia full field digital mammography system is based on its proprietary, amorphous selenium DirectRay digital detector, which preserves image quality by using amorphous selenium to directly convert x-rays to electronic signals, without first converting them to light. This direct conversion process preserves image sharpness by eliminating light diffusion. The open architecture of the system's design provides for integration with existing enterprise Picture Archiving and Communications Systems (PACS) and Radiology Information Systems (RIS). New additions to the Selenia product line include the development of the Selenia S digital mammography system, a product specifically designed for the screening mammography facility or mobile environment, and a new tungsten x-ray tube option which, when used in combination with a special silver filter, allows images to be acquired at a lower dose without compromising the image quality.

Breast Tomosynthesis: Breast tomosynthesis is new technology, enabling its next generation Selenia full field digital mammography System ‘Dimensions'. The Dimensions system is designed specifically to address the limitations of two dimensional (2D) digital mammography. It includes a mammography gantry capable of performing both 2D and three dimensional (3D) image acquisition and display.


Most of this is the result of the Cytyc acquisition.

Cytyc developed the ThinPrep System used primarily for cytology applications, such as cervical cancer screening, and the FullTerm Fetal Fibronectin Test for pre-term birth risk assessment.

As a result of its acquisition of Third Wave Technologies, Inc. in July 2008, its diagnostic product offerings also include the proprietary Invader chemistry, which provides clinicians and researchers with molecular diagnostic products and includes two human papillomavirus (HPV) tests that are awaiting FDA approval.

The ThinPrep System is a method used for cervical cancer screening in the United States. The ThinPrep System consists of any one or more of the following: the ThinPrep 2000 Processor, ThinPrep 3000 Processor, ThinPrep Imaging System, and related reagents, filters and other supplies. It tests for the wart viruses that are responsible for cervical cancer. The test has become pretty much SOP for GYN exams

In addition to serving as a replacement for the conventional Pap smear, the ThinPrep System can also be used for non-gynecological cytology screening applications. Non-gynecological cytology applications include fine-needle aspiration specimens (breast, thyroid, lung or liver), lavage specimens (breast, gastrointestinal), body fluids (urine, pleural fluid, ascitic fluid, pericardial fluid), respiratory specimens (sputum, brushing of respiratory tracts) and ancillary testing (cell blocks, immunocytochemistry, special stains).

GYN surgical

The company's GYN surgical products include the NovaSure Impedance Controlled RF Ablation System (NovaSure System); the Adiana Complete Transcervical Sterilization (TCS) System; and the GliaSite Radiation Therapy System.

The NovaSure System is a disposable device and a controller that delivers radio frequency (RF) energy to ablate the endometrial lining of the uterus and contol bleeding.

The Adiana is an interesting idea and I am now seeing it advertised on the tube.. It is a form of permanent female contraception intended as an alternative to tubal ligation It uses RF to seal tubes. Now approved in the EU


The company's skeletal health products include dual-energy X-ray bone densitometry systems, an ultrasound-based osteoporosis assessment product, its Fluoroscan mini C-arm imaging products and its Esaote line of extremity Magnetic Resonance Imaging (MRI) systems that are manufactured by an original equipment manufacturer.


One more thing I like about HOLX is the nearly pure play in digital radiology unencumbered by the lumbering giant corporations we get in GE Philips and Siemens Granted they have branched out in to diagnostics and away from the core competence butCytyc did bring more women's health products and not something completely unrelated.

The company's mammography and related products and subsystems compete on a worldwide basis with products offered by various competitors, including GE, Siemens, Philips, PlanMed, Agfa, Carestream Health, Fuji, IMS Giotto, Sectra, and Toshiba. Its Selenia full field digital mammography system competes with products, such as GE's and Siemens' full field digital mammography systems.

The company's competitors for its biopsy and tissue extraction product line are Ethicon, a Johnson & Johnson company; SenoRx; Bard; Cardinal; Sanarus; Rubicor; and Intact Medical. Its MammoSite System faces competition from SenoRx, Inc. and Cianna Medical.

ThinPrep liquid-based slide preparation faces direct competition in the United States primarily from Becton, Dickinson and Company.

NovaSure System faces direct competition from Johnson & Johnson, Boston Scientific, American Medical Systems, Inc. and Microsulis Medical Limited. Internationally its products compete with drug therapy, as well as other endometrial ablation devices, including Johnson & Johnson's Thermachoice, Boston Scientific's HTA, the Microsulis Endometrial Ablation device and two other relatively small companies that market products that are not FDA approved.

GE is its primary competitor in the osteoporosis assessment market with bone density of the hip and spine systems.


Here is where the Hologics pretty as a picture turns in to the portrait of Dorian Gray.

They are a pretty heavy acquirer. Most have been small acquisitions that added technology and capacity to existing products. Price tags were generally [relatively] small and the additions made a lot of sense to the business. Then they had to go and buy Cytyc [thin prep for cervical cancer screening]

While I liked both businesses individually and very nearly bought one or the other at various points in time, the combination has been a financial disaster.

Here is what the acquisitions have been like:


Small buy of BioLucent, --September 18, 2007 as part of Breast Health business segment.---sells MammoPad breast cushions to decrease the discomfort associated with mammography. Purchase price approximately $73.2 million, consisting of approximately $6.8 million in cash and 2,314,000 shares of Hologic stock.


Fischer Imaging -- September 29, 2005 for its mammography business and products, including the intellectual property relating to its Mammotest prone breast biopsy and Senoscan digital mammography systems. The purchase price for the intellectual property was $32.0 million, approximately $26.9 million of which was paid out of existing cash with the remaining amount paid through the cancellation of the principal and interest outstanding under a $5.0 million secured loan HOLX previously provided to Fischer Imaging on June 22, 2005.

A very good acquisition--AEG Elektrofotografie May 2, 2006 a privately held group of companies headquartered in Warstein, Germany, with manufacturing operations in Germany, China and U.S. AEG specializes in the manufacture of photoconductor materials for use in a variety of electro photographic applications, including for the coating for HOLX digital detectors. The acquisition of AEG allowed them to take control over this critical step in detector manufacturing. Purchase price was approximately $31.3 million consisting of $24.1 million and 220,000 shares of stock.

R2 Technology July 13, 2006, for its CAD technology and products, an innovative technology that assists radiologists in the early detection of breast cancer. Purchase price for R2 of approximately $220.6 million consisted of 8.8 million shares of stock valued at $205.5 million, cash paid of $6.9 million, debt assumed of $5.7 million and approximately $2.5 million for acquisition related fees and expenses.

Here was another bad decision regarding goodwill but not nearly as expensive as Cytyc.

HOLX wrote down $2.3 million and $0.4 million in 2007 and 2008, respectively. The reduction in 2007 was primarily related to a change in the preliminary valuation of certain assets and liabilities acquired based on information received during the year. The decrease in goodwill during 2008 was related to the reduction of an income tax liability.

The estimated $10.2 million of purchase price allocated to in-process research and development projects primarily related to R2's Digital CAD products. The projects added direct digital algorithm capabilities as well as a new platform technology to analyze images and breast density measurement. The projects were substantially completed as planned during fiscal 2007.

Suros Surgical Systems July 27, 2006 -- develops, manufactures and sells minimally invasive interventional breast biopsy technology and products for biopsy, tissue removal and biopsy site marking. Price was $248.1 million paid in a combination of cash and 4.6 million shares of common stock

Hologics had existing relationships with AEG, R2 and Suros as suppliers of inventory items.

2008 Acquisitions:

Third Wave Technologies

July 24, 2008 -- paid $11.25 per share -- estimated price of $591.2 million, including approximately $8.1 million for the estimated fair value of fully vested stock-based awards and approximately $7.7 million in acquisition-related expenses.

The acquisition of Third Wave does not represent a material business combination.

Third Wave, located in Madison, Wisconsin, develops and markets molecular diagnostic reagents for a wide variety of DNA and RNA analysis applications based on its proprietary Invader chemistry. Third Wave's current clinical diagnostic offerings consist of products for conditions such as Cystic Fibrosis, Hepatitis C, cardiovascular risk and other diseases. Third Wave recently submitted to the FDA for pre-market approval for two human papillomavirus, or HPV, tests - along the same lines as Cytyc.

As part of the preliminary purchase price allocation, approximately $195.2 million of the purchase price has been allocated to acquired in-process research and development projects.

This lowers earnings as it shows up on the P&L.But it makes future D&A of goodwill less.

Cytyc Corporation

October 22, 2007, completed business combination with Cytyc, now a wholly-owned subsidiary.

Cytyc shareholders received 1.04 shares of common stock (after adjusting for the stock split effected on April 2, 2008) and $16.50 in cash for each share of Cytyc common stock held by them. Shares increased by over 130 million shares-a lot of dilution.

Total price tag----$6.2 billion.

$5.8 billion accounted for as follows

$2.1 billion in cash and approximately 132.0 million shares of our common stock with an estimated fair value of approximately $3.7 billion

16.5 million of fully vested stock options issued upon conversion of Cytyc stock options with an estimated fair value of approximately $241.4 million;

the assumption of obligations of Cytyc under its 2.25% Senior Convertible Notes due 2024 with a principal amount outstanding as of October 22, 2007 of approximately $73.0 million and an estimated fair value of approximately $125.0 million; and approximately $24.2 million of direct acquisition costs.

The credit facility was refinanced in part with convertibles [see article above] ---- 2.00% Convertible Senior Notes due 2037 in the principal amount of $1.725 billion.

IPRD was approximately $370 million of the purchase price.

The most significant IPDR relates to the Adiana Complete TransCervical Sterilization System --- approximately $220.0 million. Now approved in the EU and looks promising

Cytyc Goodwill-now very Badwill

Goodwill was approximately $3.8 billion. Now it's a lot less. Enter the huge write down that we could have seen coming a hundred miles off.

During the first quarter of fiscal 2009, based upon a combination of factors, including the deteriorating macro-economic environment, declines in the stock market and the decline of our market capitalization significantly below the book value of our net assets, we concluded that potential goodwill impairment indicators existed as of December 27, 2008

We completed the Step 2 analysis during our second quarter of fiscal 2009, which resulted in an aggregate goodwill impairment charge of $2.34 billion. This impairment charge is comprised of $1.17 billion for GYN Surgical, $908.3 million for Diagnostics, and $265.9 million for Breast Health related to our MammoSite reporting unit acquired from Cytyc. We believe that our procedures and related assumptions for estimating the reporting units' fair value are reasonable and consistent with market conditions at the time of the valuation for impairment test.

Whose idea was it to pay nearly $6 billion for Cytyc?

I ran a few valuations for Cytyc pre-merger and got nowhere near $6 billion.

Cytyc was a decent company. It was growing convincingly and had a product I thought was pretty useful.

Let's start with a data dump of a few operating ratios from CYTYC pre-acquisition. They were a good company by the numbers. Margins are better than HOLX and because the products are not high capital spending equipment [radiology products] the cycles faster although HOLX does not do too badly

Growth was good but Cytyc was also an acquirer. Return ratios were OK but not great Debt levels moderate. Nice cash flow from operations.

�                          LTM 2007  2006    2005   2004    2003

Return on Assets   11.9%     11.8%   13.0%   15.9%   20.5%
Return on Capital   13.9%     13.8%   14.9%   17.5%   22.7%
Return on Equity     8.5%     20.1%   20.3%   17.5%   22.5%


Gross Margin        76.0%     77.9%   78.9%   79.0%   81.1%
EBIT Margin         33.0%     34.2%   37.8%   38.9%   40.7%
Net  Margin            9.0%     22.9%   22.3%   18.7%   25.2%
Normalized Net      20.6%     21.6%   22.9%   23.7%   26.0%

Cash conversion

DSO                     54.0      53.3    52.6    49.1    45.8
DIO                      66.8      72.8    70.4    67.2    76.3
DPO                     27.8      30.2    33.5    39.3    47.5
CCC                     93.0      95.9    89.5    77.0    74.6
Total Debt/Equity   38.6%     32.9%   39.8%   51.3%    NA
Total Debt/Capital  27.8%     24.8%   28.5%   33.9%    NA


Total Revenue        20.5%     19.7%   29.1%   29.9%   28.1%
Gross Profit           16.5%     18.2%   28.9%   26.6%   30.7%
Normalized Net      12.6%     12.8%   24.8%   18.7%   51.9%

Cash flow capex and acquisitions

�                     Ltm 2007  2006    2005    2004  
CFFO                186.2     173.7   176.0   137.6
Capex                (47.6)     (47.8)  (40.6)  (61.3) 
Acquisitions       (491.0)    (22.3) (161.8) (309.3) 
FCF                  (352.4)    103.6   (26.5) (233.0) 

Was Cytyc really worth $6 billion? Just off the top, $6 billion seems like a lot to pay for a company with revenues of $675 million in the last 12 months of operations. IIRC I read somewhere that most acquirers like to pay in the neighborhood of 8X EBITDA for a business. Of course the lower the better.

Here is how the Cytyc acquisition looked:

purchase price    6,156.0
price/ebitda            23.1X
price/ebit               27.7X
price/revenue           9.1X

Yikes in a word. Maybe a little high?

What would you pay? Clue-not $6 billion

So I ran a DCF of the Cytyc business to get some idea ballpark and very roughly what the business was worth on a cash flow basis:

First scenario is the growth required to get to $6 billion


Current EBIT                   $22.50
Current Net Income          $60.80
Current Interest Expense   $10.10
Current Capital Spending  $202.00
Current Depreciation         $44.30
Tax Rate on Income           35.00%
Current Revenues           $675.00
Current Working Capital     $38.70
Chg. Working Capital          $6.00
Book Value of Debt         $305.20
Book Value of Equity       $791.30

CAGR for 10 years was 25%
Terminal 3%
Discount 11%


Present Value of FCFF in high growth phase   ($361.82)
Present Value of Terminal Value of Firm        $6,957.47
Value of the firm                                         $6,595.65
Market Value of Debt                                    $305.20
Market Value of Equity                                $6,290.45
Cash                                                            $31.00
Value of Equity in Common Stock                  $6,321.45
Value of Equity per Share                                 $55.45

One small problem is Cytyc on its own would have to produce $6.3 billion in revenue in 10 years. That looks problematic with the LTM revenue in 2007 at $675 million. It would have to grow by 10X. IMO that would not be likely. Don't know what HOLX was thinking. Revising it down to what seemed to be a more realistic 10 year CAGR of 13% gave them a 10 year revenue of $2.3 billion. I was not convinced even the combined company of Cytyc/Hologic could do $6 billion in revenue. There is too much competition and not an endless market for product

The revised value for Cytyc looked like this:

Present Value of FCFF in high growth phase   ($167.77)
Present Value of Terminal Value of Firm         $2,562.38
Value of the firm                                          $2,394.62
Market Value of Debt                                      $305.20
Market Value of Equity                                 $2,089.42
Cash                                                              $31.00
Value of Equity in Common Stock                   $2,120.42
Value of Equity per Share                                 $18.60

Even if I am off by a bunch, it's nowhere close to $6 billion. Sorry Holgic you blew it! and I think the massive goodwill write off proves my point.

Both scenarios give the value to the terminal growth with the 10 year growth at a negative value. Even at high 25% growth the capex spending was a killer. I guess you could argue for its reduction, but Cytyc grew by acquisition. Maybe HOLX ran a scenario with no capex for acquisition.

Taking capex down to the average without acquisition--$10 million-the value during the 10 year high growth turns positive and the firm value reaches $4 billion. With the recent $2 billion write off, that's about what the company is worth according to HOLX. Still not worth $6 billion.

What about Hologics

In spite of their apparent stupidity in acquiring Cytyc, Hologics is in a business I like - digital radiology. Along with that the company has some interventions for breast cancer and other GYN procedures. The new tubal sterilization looks promising. Cytyc Thin-Prep is an excellent technique for doing cervical testing for carcinogenic HPV [genital warts causing cancer]. It's an attractive business and a chance to invest in the technology without getting a lot drek along with it. Even the big boyz radiology divisions are suffering as hospitals cut capex. Hologics was hit too.

From the CC:

Q2 FY09 revenues totaled $402 million, a 7% decrease over the second quarter of fiscal '08. This decline was primarily due from soft sales of our Selenia full field digital mammography systems due to the global recession which continues to negatively impact the hospital market, thereby constraining capital equipment spending. This dropoff, however, was partially offset by the performance in our diagnostics and surgical businesses, which were slightly impacted from the rising unemployment rate and overall economic environment

As I mentioned earlier, the hospital capital spending environment in the U.S. and abroad remains very difficult. This has naturally dampened demand for our capital businesses which comprise roughly 40% of consolidated revenues. We see budgets remaining constrained through the end of fiscal year, while prospects for fiscal 2010 remain highly uncertain.

The international market for capital equipment is also under pressure as governments are fighting the same issues of unemployment, tight credit, and reduction in exports. However, with roughly 60% of our business in more recession resistant disposable products, the economy's effect has been more muted than our capital businesses. This favorable mix of higher margin disposable products helped to contribute to another quarter of nonGAAP gross margins above our initial expectations

Other operating segments did better
Again from the CC:

Diagnostic revenues totaled $135 million and increased 8.5% compared to $124

Worldwide ThinPrep Pap test sales continued to increase, while U.S. sales were off modestly as women have foregone some preventive care in the current climate in favor of urgent care consistent with our expectations.

GYN surgical revenues totaled $63.8 million and increased 16% compared to $55.2 million for Q2 FY08.

Skeletal health revenues totaled $23 million, compared to $28 million for the same period in fiscal '08. Sales were in line with expectations given the weakness in hospital capital equipment spending which impacted our worldwide bone densitometry and MRI sales.

Adiana will be approved shortly in the US pending inspections. HOLX expects launch in 2009

Two HPV test from the acquired Third Wave were approved

Take a moment to recap the bad news surrounding HOLX bringing the price down

Sales of important digital radiology products declining.
Big write down of goodwill essentially admitting they were idiots to spend $6 billion.

Now the final nail in the coffin of death for them right now is the delay in bringing important new digital product to market. That was good for another 20% drop this week. It is called tomosynthesis and allows 3-D type imaging.

From the CC:

Relative to tomosynthesis, in midApril, we met with the FDA and discussed their proposed June panel date for our PMA application. Since that time, Hologic management made the decision to postpone the panel date. Although this will push out our U.S. launch, we believe we are better served longterm by doing so based on the following key factors.

First, there is considerable internal unrest at the FDA, along with changes associated with the appointment of a new commissioner. Therefore, we decided to delay a panel meeting because we believe it is absolutely crucial to wait until the FDA has stabilized its internal resources with leadership and decision makers in place that can review our data set and proceed with our filing.

Let me be blunt. We reached a point where we had to weigh the risks and rewards of going to panel. It is our firm belief that data in our submission clearly demonstrates the potential benefits of tomosynthesis. However, because of a fundamental difference in thinking by the current review team regarding the previously agreedupon approach since our original meetings, we believe there is risk in the submission not receiving approval.

Secondly, since we originally filed our PMA application, we have learned a great deal about what will be necessary to enhance approval and clinical adoption of tomo and believe the previous study design was not optimum in those areas. Therefore, we're considering other alternatives including using our current data, analyzed differently, and/or submitting additional clinical data to support the total value of tomosynthesis. Simply stated, the goal is to better facilitate our path to approval and to enhance the adoption of tomosynthesis.

Third, we do not believe the current economic climate and purchasing trends within the U.S. hospital market provide a favorable environment to promote a new premium priced technology. We believe a more phased in approach relative to approved indications will allow for a more practical initial adoption and lay the foundation for a broader future roll out. The current environment has shown that demand for our current Selenia systems will remain weak well into fiscal 2010 and is likely to have the same impact on selling 3D Dimensions with its added premium.

Therefore, introducing a new premium product into the market during this difficult economic time is premature. The ultimate objective is to have tomosynthesis approved for sale, and we believe additional time is required to prepare for a panel to assure the fastest approval time. I appreciate that some shareholders may view our decision to delay the panel date as impacting revenue growth for 2010. But, again, given what we are experiencing in the market today and the considerable unknowns for next year's global economy, we do not see any appreciable topline contribution even if we gained approval for tomosynthesis at this point in time.

The market hated this news-stock down 15%. Although the revenue decline and goodwill write off no doubt contributed their share.

Lots weighing against HOLX now and growth may be a year or more away.The reason I can't hate them is the products are relevant and have been competitive even against the big boyz in the past. The Cytyc products are also worth something and find uses every day in the clinical setting. They are consumable and an important part of yearly exams

Cytyc should bring up margins and give them a consumable product in high demand with a shorter sales cycle. Its actually a nice complement to the core business. Integration may be painful. Diagnostics has managed reasonably good growth this Q

To finish this a few more numbers:

The margins are to show how the 2007 acquisition of CYTYC did increase margins

�              LTM 2009  2008   2007   2006   2005
Gross Margin   62.3%     61.8%  48.3%  43.7%  39.3%
EBIT Margin     23.4%     25.3%  20.0%  15.0%  11.3%
Net Margin    (137.1%)   (23.0%) 12.8%   5.9%   9.8%
Normalized Net 12.0%     12.8%  12.6%   9.7%   7.5%

Lots of debt but as we can see with cash flow later, not a lot of trouble paying it. Most of the debt is convertibles maturing 2037. With a strike price around $38 and a stock price at $12, not much danger of massive appreciation any time soon. As the article above pointed out, the value of the bonds could appreciate if the company is acquired.

There is a $344 million term loan due in 2012. It is senior. The 3 year window gives them some time to maneuver. I am hoping this takes any further acquisitions off the list of things to do for awhile.

Total Debt/Equity   88.1 %  
Total Debt/Capital  46.8%  

Return ratios are ugly and have never been great. Too many acquisitions too fast? Too many shares traded for acquisitions? Definitely far too much goodwill translating into assets that are not paying their way.

There will be no share repurchases for the foreseeable future and maybe even further out since I don't see to far into the future usually. So no shareholder value to be recovered there or in dividends. We have to if we invest pray for share appreciation:

�                   LTM 2009  2008   2007   2006   2005
Return on Assets   3.7%       5.7%   9.6%   7.6%   8.3%
Return on Capital   4.5%       6.9%  12.4%   9.8%  10.6%
Return on Equity (65.9%)    (14.2%) 13.4%   6.7%  14.7%

how are they doing with inventory and sales? Between September 2008 and this Q inventory was up only 2% even as sales slowed.

�       LTM 2009  2008   2007   2006   2005
DSO     65.5      52.2   64.4    66.7   67.2
DIO      95.5      79.6   94.8    98.4   88.3
DPO     30.5      26.1   31.8    24.4   25.1
CCC    30.5     105.6  127.4   140.7  130.3

Cash flow from operations has improved over the past:

�                LTM 2009  2008    2007   2006   2005
CFFO             364.6    153.3    16.5   45.2   26.6
Capex             (78.3)   (22.8)  (13.0)  (7.7)  (7.2) 
Acquisitions  (2,609.3)   (36.3) (171.8)  (5.4)  (0.3) 

Revenue for 2009 is going to be slightly down on guidance. There is not much assurance that 2010 will be a lot better:

Therefore, our high level guidance is as follows. First, we are targeting total revenues of $1.625 billion to $1.65 billion. Our revenue guidance at this point includes U.S. sales of both Cervista HPV and Adiana once approved, realizing we will only get a modest contribution from these products in the current fiscal year. We still expect to see meaningful revenue traction from these new products in fiscal 2010.With that in mind I ran a DCF

The inputs for growth

Year   revenue  operating   growth    growth        WC/
�      Growth    expense    capex     depreciation  revenue
1          0          63%         0              0         8.00%
2    10.00%       63%        10%        10%        8.00%
3    15.00%       63%        15%        15%        8.00%
4    15.00%       63%        15%        15%        8.00%
5    20.00%       63%        20%        20%        8.00%
6    22.00%       63%        22%        22           8.00%
7    20.00%       63%        20%        20%        8.00%
8    15.00%       63%        15%        15%        8.00%
9    10.00%       63%        10%        10%        8.00%
10    8.00%       63%         8%         8%         8.00%

Compounded Avg 13%

growth rate in stable growth period  3.00%
operating expenses %                  63.00%
working capital %                         8.00%
debt ratio                                    25%


Cost of Equity             11.00%  
Equity/(Debt+Equity )   59.62%  
After-tax Cost of debt    3.90%  
Debt/(Debt +Equity)     40.38%  
Cost of Capital              8.13%  

Growth Rate in Stable Phase        3.00%
FCFF in Stable Phase              $1,363.93 
Cost of Equity in Stable Phase    11.00%
Equity/ (Equity + Debt)              75.00%
AT Cost of Debt in Stable Phase   3.90%
Debt/ (Equity + Debt)                25.00%
Cost of Capital in Stable Phase     9.23%
Value at the end of growth phase $21,910.50 


Present Value of FCFF in high growth phase  ($2,324.76)
Present Value of Terminal Value of Firm         $9,726.77
Value of the firm                                          $7,402.01
Market Value of Debt                                   $2,081.00
Market Value of Equity                                 $5,321.01
Cash                                                           $217.00
Value of Equity in Common Stock                  $5,538.01
Value of Equity per Share                                 $21.63

Seems like a reasonable margin of safety even with the high capex and debt. But there is no doubt this one has some risk and may be dead for a couple of years. Very speculative. Worth a gamble? Any opinions on those with hairball experience....